19.1 C CORPORATIONS Flashcards
WHAT IS THE THE CORPORATE INCOME TAX FORMULA?
- C CORPS USE FORM 1120 FOR REPORTING INCOME, GAINS, DEDUCTIONS, AND CREDITS, AND TO DETERMINE TAXABLE INCOME AND INCOME TAX LIABILITY
WHAT IS TREATMENTS OF TAXABLE REVENUE/INCOME FOR CASH AND ACCRUAL BASIS?
EXCEPTION: RENT AND INSURANCE PREMIUMS
WHAT IS TREATMENTS OF TAXABLE DEDUCTIONS FOR CASH AND ACCRUAL BASIS?
AN ACCRUAL BASIS TAXPAYER CAN ACCRUE AN EXPENSE IF THE TRANSACTION MEETS BOTH AND,
1) ALL-EVENTS TEST: EXISTENCE OF A LIABILITY IS ESTABLISHED, AND THE AMOUNT OF LIABILITY CAN BE DETERMINED WITH REASONABLE ACCURACY.
2) ECONOMIC PERFORMANCE TEST: OCCURS WHEN PROPERTY AND/OR SERVICES HAVE BEEN PROVIDED. ACCRUED ITEMS THAT ARE EXPECTED TO BE PAID WITHIN A SHORT PERIOD OF TIME AFTER ACCRUAL MAY BE DEDUCTED WHEN ACCRUED IF PAID WITHIN 2 1/2 MONTHS OF THE TAX YEAR END.
WHAT IS TREATMENTS OF TAXABLE DEDUCTIONS FOR CASH AND ACCRUAL BASIS - DEDUCTING ACCRUED COMPENSATION?
AS PREVIOUSLY MENTIONED FOR TAX PURPOSES THE DIRECT WRITE OFF METHOD IS USED SO THE DIFFERENCE BETWEEN THE ALLOWANCE AND DIRECT WRITE OFF CREATES A TEMPORARY DIFFERENCE. A GRACE PERIOD OF 2 1/2 MONTHS ARE ALLOWED TO COUNT THE DEDUCTION IN THE CURRENT YEAR. FRO CALENDER YEAR END, FOR FISCAL YEAR END
*FYI UP TO 1 MIL OF COMPENSATION EXPENSE FOR CERTAIN COVERED EMPLOYEES IS PERMITTED
WHAT IS THE DEDUCTIBILITY OF CASUALTY LOSSES FOR C-CORPS?
THE LESSER OF THE ADJUSTED BASIS BEFORE THE CASUALTY, OR THE DECLINE IN VALUE.
WHAT IS THE DEDUCTABILITY TREATMENT OF BUSINESS GIFTS?
WHAT IS THE DEDUCTABILITY TREATMENT OF RESEARCH AND EXPERIMENTAL COSTS?
R&E EXPENDITURES ARE CAPITALIZED AND AMORTIZED OVER 5 YEARS. MID YEAR AMORTIZATION IS USED IN THE FIRST YEAR.
WHAT ARE DIVIDEND RECEIVED DEDUCTIONS?
WHEN AN INVESTOR CORPORATION RECEIVED DIVIDENDS FROM DOMESTIC INVESTEE CORPORATION, IT GENERALLY IS ALLOWED A DRD TO MINIMIZE MULTIPLE TAXATION.
TO QUALIFY FOR THE DEDUCTION, THE CORPORATION MUST HAVE HELD THE STOCK FOR AT LEAST 46 DAYS PRIOR TO THE EX-DIVIDEND DATE.
FOLLOW STEPS - SCREENSHOT
- IF FULL DRD IS GREATER THAN TAXABLE INCOME (BEFORE DRD) THE FULL DRD APPLIES
- IF FULL DRD IS LESS THAN TAXABLE INCOME (BEFORE DRD) THE DEDUCTION IS LIMITED TO THE LESSER OF FULL AND LIMITED DRD.
WHAT IS THE MAXIMUM ALLOWABLE DEDUCTION THAT CORPORATION CAN TAKE AS A CHARITABLE CONTRIBUTION?
- FOR LT CAPITAL GAIN PROPERTY , THE DEDUCTION EQUALS THE FMV OF THE PROPERTY
- FOR OTHER PROPERTY, THE DEDUCTION IS THE LESSER OF THE PROPERTY’S ADJUSTED TAX BASIS OR THE FMV ON DATE CONTRIBUTED.
- LIMITED TO 10% OF TAXABLE INCOME BEFORE CHARITABLE CONTRIBUTIONS, NOL’S, DRD’S AND SPECIAL DEDUCTIONS.
*SPECIAL DEDUCTIONS: CHARITABLE CONTRIBUTIONS, DRD, DEDUCTION FOR A CAPITAL LOSS CARRYBACK.
ACCRUAL METHOD CORPORATIONS CAN ELECT TO TREAT AS PAID DURING THE TAX YEAR ANY CONTRIBUTION PAID BY 4/15
THE REMAINDER EXCEEDING THE 10% IS CARRIED FORWARD UP TO 5 YEARS
WHAT IS THE NETTING PROCESS OF A C CORPORATION?
THE RESULT IS AN OVERALL NET CAPITAL GAIN OR NET CAPITAL LOSS. ALWAYS TREATED AS SHORT TERM
A NET CAPITAL GAIN IS REPORTED AS ORDINARY INCOME
AS NET CAPITAL LOSS IS NOT ALLOWED TO BE DEDUCTED AGAINST ORDINARY INCOME.
IF WE HAVE 1231 GAINS THEY ARE INCLUDED IN THE NETTING PROCESS, HOWEVER 1231 LOSSES ARE IMMEDIATELY USED TO OFFSET ORINDAY INCOME
IT IS SUBJECT TO THE CARRY BACK AND CARRY FORWARD RULE TO OFFSET PRIOR CAPITAL GAINS.
WHAT IS THE TREATMENT OF C CORPORATIONS’ NET CAPITAL LOSS?
*OFFSET IS LIMITED BY TAXABLE INCOME IF APPLICABLE
WHAT IS THE FOREIGN TAX CREDIT LIMITATION?
THE PURPOSE OF THIS CREDIT IS TO PREVENT DOUBLE TAXATION OF FOREIGN INCOME THAT IS SUBJECT TO INCOME TAX.
WHAT IS THE GENERAL BUSINESS CREDIT?
REWARDS COMPANIES FOR ENGAGING IN CERTAIN ACTIVITIES
*THE CREDIT IS LIMITED TO THE TAXPAYERS NET INCOME REDUCE BY 25% OF THE NET INCOME THAT EXCEEDS 25K
NET INCOME TAX - [(NET INCOME TAX - 25K) x 25%]
WHAT IS PULIC LAW 86-272?
ALLOWS A BUSINESS TO GO OR SEND A REPRESENTATIVE INTO A STATE TO SOLICIT ORDERS FOR GOODS WITHOUT BEING SUBJECT TO A NET INCOME TAX.
APPLIES EXCLUSIVELY TO ORDERS FOR TABGIBLE PERSONAL PROPERTY.
WHAT IS NEXUS
AN ENTITY HAS NEXUS WITH ANOTHER STATE WHEN IT ENGAGES IN CERTAIN SIGNIFICANT ACTIVITIES WITHIN THAT OTHER STATE. (SUBJECT TO SALES AND INCOME TAX)
ONCE NEXUS IS ESTABLISHED, THE ENTITY MUST OBTAIN A CERTIFICATE OF AUTHORITY FROM THE STATE TO DO BUSINESS THERE.
WHAT IS THE 3 FACTOR APPORTIONMENT FORMULA?
CORPORATIONS OPERATING IN MULTIPLE STATES ARE REQUIRED TO APPORTION THEIR BUSINESS INCOME AMONG THE STATES IN WHICH THEY OPERATE UNIFORM DIVISION OF INCOME FOR TAX PURPOSES ACT (UDITPA)
STATES GENERALLY USE THE AVERAGE OF THREE FACTORS,
1) SALES
2) PAYROLL
3) PROPERTY
WHAT ARE THE GENERAL REQUIREMENTS FOR CORPORATE MERGERS AND CONSOLIDATIONS?
DOUBLE-WEIGHTED APPORTIONMENT FORMULA
WHAT IS THE TREATMENT OF NOL’S
OCCURS WHEN A CORPORATIONS ALLOWABLE DEDUCTION EXCEEDS GROSS INCOME FOR TAX PURPOSES. NOL’S OFFSET TAXABLE INCOME UP TO 80% AND CAN BE CARRIED FORWARD INDEFINETELY.
